Option Investor
Newsletter

Daily Newsletter, Saturday, 8/22/2009

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Two Months Left

by James Brown

Click here to email James Brown

Volumes may be down but summer trading can still be exciting. Last week was a volatile one. Do you remember the fear and panic last Monday? The S&P 500 fell more than 2% thanks to a nearly 6% plunge in the Chinese market and a huge spike in the U.S. dollar. The fear didn't last long as investors pounced on the decline as an opportunity to buy the dip. What looked like a breakdown from its trading range proved to be another bear trap as stocks rallied higher for the next four days. Now stocks have broken out to new highs for 2009.

Friday's rally was fueled by positive comments out of Fed chairman Ben Bernanke at the annual Federal Reserve meeting in Jackson Hole, Wyoming. Some of the media were calling it Ben's victory lap for saving the economy from another great depression. Others saw his speech as a chance for him to save his job and fight off rumors that President Obama would like to replace him. Essentially all he said was that prospects for near-term growth look good and that was enough for the markets. Investors ignore his comments that "difficult challenges still lie ahead."

Just in case Bernanke's comments weren't enough to fuel another round of short covering the National Association of Realtors said July home sales soared 7.2%, the biggest one-month jump in history (or least since records were kept since 1999). The annual sales pace came in at 5.25 million, which was better than the 5.0 million estimate. This was also the fourth monthly gain in a row, a feat not seen in five years. Never mind that about 30% of sales were first-time homebuyers trying to get in before the $8,000 tax credit expires in November. Never mind that more than 30% of sales were foreclosures or short sales. Never mind that home sales valued in the $250-500K range fell more than 6%. The only bull market in housing is for homes under $100K and a lot of those are probably condos. I said last week that the market has selective hearing and they're only hearing the bullish spin for any news these days.

SHORT TERM OUTLOOK

Short-term my outlook is still bullish. We are in a market environment where money managers are chasing performance. I don't want to repeat myself too much but they're scared to miss the rally. The end of October is the fiscal year end for many mutual funds so these managers that have been under invested have just over two months left to catch up. This is probably going to keep a floor under the market with money flooding in to buy the dips.

Technically the breakout over 1,020 in the S&P 500 is also a breakout past the 38.2% Fibonacci retracement of the 2007-2009 sell-off. The next Fib retracement resistance is the 50% mark near the 1100 level. I do see potential resistance in the 1060-1070 zone but odds are the market is now aiming for 1100. The 1,000-980 level should now act as support.

Weekly Chart of the S&P 500:

While seasonally August and September are the worst time of year for stocks I do not believe seasonal trends are going to be a factor this time. The only minefields appear to be a sudden reversal in the currently bullish trend of economic data, which is unlikely, and any abysmally low back-to-school sales data. Fortunately, most of the analysts seem to have already factored in a bad back-to-school season for the retailers.

This coming week we can keep our eyes and ears open for any significant changes in the Q2 GDP number, which is updated this Thursday. Plus, the Treasury Department is selling another $109 billion in 2, 5, and 7-year bonds. Should any of these auctions go poorly it will be bearish for the market but thus far the short-term bond auctions have been pretty strong.

LONGER TERM OUTLOOK

My longer-term outlook is not quite so rosy. I'm mostly bullish for the rest of 2009 but I think 2010 could be a big disappointment. I'm currently in the "W"-shaped economic recovery camp and we can expect the stock market to follow suit with another big swoon. Now I'm not expecting stocks to test their 2009 lows but it's going to be painful. Why? The unemployment-housing-foreclosure-consumer-spending black hole is the reason.

Regular readers have heard this rant before so I'll keep most of it short but I've got some new details on the housing market. First of all we are still near record unemployment and the trend is still up. You've heard the term "jobless recovery". Odds are we're going to see another one. Businesses have slashed costs to the bone and they're going to be reluctant to hire new workers again. As unemployment stays high or ticks higher it will keep a cap on consumer spending. Consumers are nervous about their job security so they're saving more. Baby boomers are retiring soon and they've seen their 401Ks and their home values plummet, so they're saving more. Weak consumer spending is going to fuel to a weak recovery.

The high unemployment and weak spending will continue to power the foreclosure problem. We've had several months of 300,000+ foreclosure filings. Now not all of them turn into foreclosures but enough of them do. This last week the Mortgage Bankers Association said foreclosures hit new all-time highs in the second quarter. More than 9% of homeowners with a mortgage had missed one or more payments (these are delinquent loans) and another 4% of mortgages were in foreclosure. Furthermore the foreclosure plague was spreading from sub-prime to prime fixed-rate loans. You keep hearing analysts remind people that banks still have toxic assets on their balance sheets. Residential mortgages are a major slice of the toxic loans.

A Deutsche Bank analyst provided an interesting forecast this last week. Currently there are about 110 million households in the U.S. Of those about 75.5 million own a home. Close to 68% of homeowners have a mortgage so that's about 51.6 million. Currently 27%, about 14 million homeowners, have a mortgage that is underwater. The DB analyst expects that the number of mortgages that will be underwater by the end of 2010 is going to jump to 48% or almost half of the 51.6 million.

Currently home values are down about 33% from their peak and many analysts are predicting that values will continue to fall another 10-15%. If you're a homeowner and the value of your home is already 30% less than what you owe then you are way more likely to give up and let the bank repossess it. It's going to take years and years before your house ever gets close to breakeven again.

The DB analysts broke down their forecast by mortgage type. Currently 16% of prime loans are underwater. They expect this to jump to 41% by the end of 2010. About 29% of prime-jumbo loans are underwater. This is expected to rise to 47%. Sub-prime loans are already at 50% and expected to reach 68% next year. The option-arm loans I've been warning about for months are already at 77% underwater and forecasted to reach 89% by the end of 2010. Yes, there is a tsunami of foreclosures headed for the U.S. market. What about the big jump in existing home sales on Friday? I believe the tax-credit is pulling a lot of sales forward and July and August are normally the peak of the home-buying season. August could show some strong numbers but it's usually down hill from here. Add to that the tax-credit expiring in November and the drop off in home sales could be very steep.

However, I'm not expecting this to have much of an impact until 2010. The economy is bouncing as businesses gear up for an inventory replenishment phase. We will probably see the GDP turn positive for the third and fourth quarter this year. Where it goes from there is a good guess.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Last week was a key turning point for the market. The S&P 500 has convincingly cleared resistance near 1,000. Now investors are aiming for the 1,100 level. This is a market where traders want to buy the dips but I would scale down your position size to limit risk. Stocks remain extremely overbought.

Currently we have thirteen stocks on our watch list.

ANR - Alpha Natural Resources, Inc., trigger 31.00
BEAV - BE Aerospace Inc., trigger: $15.00
BG - Bunge Limited, trigger $61.00
CLF - Cliffs Natural Resources Inc., trigger 23.50 or 32.55
CNX - Consol Energy Inc., trigger $35.25
ERJ - EMBRAER - Empresa Brasileira de Aeronáutica, trigger $18.50
IGT - Intl. Game Tech., trigger $17.50
MEE - Massey Energy Corp., trigger $23.50
MICC - Millicom Cellular, trigger: $62.50
TEX - Terex Corp., trigger 15.00 or 18.25
WLT - Walter Energy Inc., trigger $36.00
X - United States Steel Corp., trigger 37.50
XIDE - Exide Technologies, trigger 6.50

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a dropped play this week.



Jim's portfolio and updates has been included in the normal play updates section.


New Plays

Promoted

by James Brown

Click here to email James Brown


Still Chasing Performance


Editor's Note:

What a difference a week makes. The major averages are breaking out or close to it. Money is still chasing performance and that phenomenon will probably continue. We're getting more aggressive with our trigger points on the watch list.

LEAPS are supposed to be a long-term investment. Buying new highs can be a dangerous entry point. Thus I'm not adding any new plays this weekend but I did promote DISH from the watch list to the active play list with an entry to buy LEAPS now.

I've added two new candidates to the watch list, TEX and XIDE.


Play Updates

CRM Scores Big, ERTS Breaks Down

by James Brown

Click here to email James Brown
Now that the market is breaking out to new highs I'm updating several stop losses and exit targets.


Closed Plays


ERTS - We have closed the ERTS play early.


Play Updates


ACGY $10.79 +0.45 -- Acergy S.A.

ACGY is still shadowing the move in the oil services sector. Short-term technicals are turning positive again with last week's rebound. More conservative traders may want to consider a higher stop loss.

I'm not suggesting new LEAPS positions at this time. Our stop is at $6.95. Our plan is to exit in the $14.50-15.00 zone.

April 25th, 2009 - entry price on ACGY @ 7.61, option @ 1.05
symbol: QLS-AB, 2010 JAN $10 LEAP call - current bid/ask $1.85/2.10
-stop loss on ACGY @ 6.95

Chart of ACGY


ACI $17.50 +0.51 -- Arch Coal Inc.

The two-week trend in ACI is still down but last week the stock bounced from its 38.2% Fibonacci retracement of its July-August rally. The low last week was $16.41 near its 40 and 50-dma. Readers can still open LEAPS positions in the $16.50-16.00 zone but more conservative traders may want to wait for a new relative high since ACI appears to be lagging behind its peers in the coal sector. Our long-term target is the $30 region. If you do launch new positions I would buy the 2010 January $20 calls or 2011 January $25 calls rather than the ones originally listed below.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 1.30
symbol: ACI-AE, 2010 JAN $25 LEAP call - current bid/ask .30/0.40
-stop loss on ACI @ 12.85

-or-

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $1.00/1.15
-stop loss on ACI @ 12.85

Chart of ACI:


BAC $17.46 +0.32 - Bank of America Corp.

BAC gapped open higher on Friday and managed to close near its 2009 highs. The stock remains overbought but the trend is up and investors have been rushing to buy the dips. I'm not suggesting new positions at this time.

I want to remind readers that this is a long-term, two-year trade. Our exit target is the $30-40 zone. I'm adding a stop loss at breakeven $6.24 on BAC. More conservative traders may want to place theirs higher (maybe just under $10 or $11).

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $8.60/8.70
-stop loss on BAC @ 6.24

Chart of BAC


CRM $53.67 +7.49 -- Salesforce.com

CRM has exceeded our first target to take profits. The company reported earnings on Thursday night that were better than expected. Management guided third quarter numbers inline but raised guidance for 2010. Multiple analyst firms raised their rating on CRM. The stock gapped open higher at $51.65 on Friday morning and closed at new highs for the year up 16% on the session. Our first target to take profits (sell half) was at $49.00. Our second and final target is $57.00. I am raising our stop loss to $42.50. I am not suggesting new positions at this time.

I want to repeat - if you have not taken some profits off the table I suggest you do so now.

April 1st, 2009 - entry price on CRM @ 30.00, option @ 4.30
symbol: CRM-AH, JAN 2010 $40 LEAP call - current bid/ask $14.90/15.20
-stop loss on CRM @ 42.50.
(note: readers reported getting a better entry price than $4.30)
08-21-09 sold half, gap higher @ $51.65 (option opened @ $14.50 +237%)

-or-

April 1st, 2009 - entry price on CRM @ 30.00, option @ 2.00
symbol: CRM-AI, JAN 2010 $45 LEAP call - current bid/ask $11.00/11.30
-stop loss on CRM @ 42.50.
08-21-09 sold half, gap higher @ 51.65 (option opened @ $9.90 +395%)

Chart of CRM:


DBC $22.94 +0.17 -- PowerShares DB Commodity Index (ETF)

The U.S. dollar spiked higher last Monday and faded the rest of the week. The action in the dollar was almost a reflection of the action in the stock market. A falling dollar is normally bullish for commodities and the DBC drifted higher but ran into some resistance near $23.00. I would open bullish positions near the long-term trend of higher lows. Our long-term target is $30.00.

FYI: The DBC is an ETF on the Deutsche Bank Liquid Commodity index using futures on light sweet crude oil, heating oil, aluminum, gold, corn and wheat.

July 6th, 2009 - entry price on DBC @ 21.50, option @ 4.28
symbol: VCZ-AT, 2011 JAN $20 LEAP call - current bid/ask $4.90/5.10
-stop loss on DBC @ 18.90.

-or-

July 6th, 2009 - entry price on DBC @ 21.50, option @ 2.62
symbol: VCZ-AY, 2011 JAN $25 LEAP call - current bid/ask $2.55/2.70
-stop loss on DBC @ 18.90.

Chart of DBC:


DISH $17.18 +0.23 -- Dish Network Corp.

We recently added DISH to the watch list with a trigger to buy LEAPS at $16.25. The low last week was $16.35. DISH came close to its trendline of higher lows and its 50-dma and exponential 200-dma. I'm suggesting we go ahead and open LEAPS positions now. I'm suggesting a stop loss at $15.45 just under the rising 100-dma. Our long-term target is the $25.00-30.00 zone.

August 22nd, 2009 - entry price on DISH @ 17.18, option @ $3.20
symbol: HSW-AC, 2010 JAN $15 call - current bid/ask $3.20/3.40
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $87.63 -2.61 -- Diamond Offshore

DO came close to our trigger at $82.00 last week. The stock traded near $83.75 a few times. We don't want to chase the $6.00 rally off its lows but we will raise our entry point. The new plan is to buy LEAPS on a dip at $85.50. We'll raise our stop loss to $77.50. Our target is $109.00. We can expect resistance about every $5.00 at $95, $100, etc. Readers might want to consider the 2011 January calls.

-NEW- Buy the dip trigger: $85.50

BUY 2010 JANUARY $90 CALL (symbol: KWJ-AR)
-or-
BUY 2010 JANUARY $100 CALL (symbol: KWJ-AT)

Chart of DO:


DXO $4.86 +0.09 -- Deutsche Bank Double-long Oil ETN

Oil futures rallied toward $75.00 a barrel last week. The trend is up but oil looks short-term overbought. Look for an entry point near the long-term trendline of higher lows (see chart)

Prior comments on this play:
The DXO is our long-term oil position. When we say long-term we're talking two or three years (or more). Currently the plan is to build a long-term position averaging down on dips. The $2.50 region is the sweet spot to buy the DXO. Anything under $2.50 is a gift. I want to repeat that this is not a trade. It's a multi-year investment. Currently our exit target is the $25.00 to $30.00 zone.

The Crude oil double-long ETN (exchange-traded note) offers investors two times the leveraged exposure to the monthly performance of the Deutsche Bank optimum yield crude oil index plus the monthly TBill index return.

Basically, when oil was $147 a barrel this ETN was $29.65. If oil returns to the $150 range over the next few years this ETN could rally to $30 for a 1500% return. This ETN does not expire. It can be used in IRAs and has no margin requirements like crude oil futures.

ETN Info:

Deutsche Bank ETN Fact Sheet

Deutsche Bank Pricing Description

Our plan called for buying this ETN instead of the options.

Current position in the DXO = $2.15 entry (no stop loss at this time)
If the DXO breaks it trendline of support we'll calculate a stop loss

Chart of DXO


FAS $77.43 +4.52 - Direxion Fincl.Bull 3x ETF

Financials have continued to lead the market higher. The BKX banking index has broken to new highs. The BIX and Russell Financial index have only rallied to their August highs. This has lifted FAS back toward $80.00. I don't see any changes from my previous comments.

This sector remains extremely overbought. I am not suggesting new bullish positions in FAS at this time. While this is a long-term trade I would strongly consider raising your stop loss toward the July low near $35.00.

Currently we have sold one third of our position at $60.00 (pre-split price of $12.00) and we plan to sell another third at $120.00. Honestly, I'm thinking we may want to take profits at $90.00 but we'll make that decision when the FAS gets there. We'll re-evaluate our final target for the last third of our position as needed. FYI: On July 9th, 2009 the FAS performed a 1:5 reverse split.

Our plan called for buying the ETF instead of the options.

Current position in the FAS = $2.64 entry (stop loss: 2.64)
post-split prices are: $13.20 entry (stop loss: 13.20)

Exit 1/3 position @ 60.00 (+354%) /pre-split: 12.00

Chart of FAS

Chart of RIFIN (Russell 1000 financial services)


FCX $65.06 +2.83 - Freeport McMoran

Weakness in the dollar and expectations that the economy is recovering has lifted FCX off its lows near $59.00 last week. Shares are nearing resistance at $66.00. I'm not suggesting new long-term LEAPS positions at this time. I am suggesting that we sell 50% to 75% of our position at $69.00 and we'll maintain a small position and exit completely at $77.50.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $13.85/14.00
-stop loss on FCX @ 39.45
-or-
June 22nd, 2009 - entry price on FCX @ 46.00, option @ 10.00
symbol: OBQ-AL, 2011 JAN $60 LEAP call - current bid/ask $17.15/17.65
-stop loss on FCX @ 39.45

Chart of FCX:


FSLR $121.54 - 8.88 -- First Solar

Ouch! Last week we thought FSLR looked weak and poised to breakdown. Sure enough shares lost about $20. We're not suggesting new positions at this time. At the moment we're long the 2010 January $100 put and we have a covered call play that should be fine if FSLR stays above $100.

Covered Call position:

Long 100 shares of FSLR @ $128.00
Short 2010 $150 LEAPS Call LZL-AA @ $40.70
Profit if called is $40.70 in option premium + $22 in stock (+49%)

Put Spread position:

Long 2010 $100 LEAPS Put LQM-MT @ $32.90
Short 2010 $250 LEAPS Put LZL-MJ @ $135.70, net credit $103

- Update 08/15/09 -
Cover the 2010 $250 Put at $109.40. Keep the $100 put.

Currently the 2010 Jan. $100 put is worth (bid) $8.80.
If you're curious the 2010 Jan. $150 call is at $ 8.10.

Chart of FSLR


GT $17.97 -0.29 -- Goodyear Tire & Rubber Co.

Traders bought the dip on Monday but the rally stalled at its August highs near $18.75 on Friday. More conservative traders may want to consider raising their stops toward $12.

I'm not suggesting new LEAPS positions at these levels. I am adjusting our exit target. We want to sell half at $22.75 and half at $26.75.

June 6th, 2009 - entry price on GT @ 12.94, option @ 2.20
symbol: GT-AC, 2010 $15 LEAP call - current bid/ask $4.20/4.40
-stop loss on GT @ 9.90.
-or-
June 6th, 2009 - entry price on GT @ 12.94, option @ 2.65
symbol: VYR-AD, 2011 $20 LEAP call - current bid/ask $3.70/4.30
-stop loss on GT @ 9.90.

Chart of GT:


HOS $22.30 +0.90 -- Hornbeck Offshore Services

HOS tested support near $20.00 last week. When the oil service stocks began to rally the stock managed to rise back above $22.00 and break the short-term trend of lower highs. Now HOS faces technical resistance at its 50-dma and exponential 200-dma. I am not suggesting new long-term LEAPS positions at this time. Our long-term target is $35.00.

June 27th, 2009 - entry price on HOS @ 21.20, option @ 4.90
symbol: HOS-AD, 2010 JAN $20 LEAP call - current bid/ask $3.90/4.50
-stop loss on HOS @ 17.85
-or-
June 27th, 2009 - entry price on HOS @ 21.20, option @ 2.70
symbol: HOS-AE, 2010 JAN $25 LEAP call - current bid/ask $1.75/2.00
-stop loss on HOS @ 17.85

Chart of HOS:


INTC $18.89 +0.18 -- Intel Corp.

INTC has found support near $18.50 for the last three weeks in a row. Can it rally from here without filling the gap? The answer is yes but I would not launch new bullish positions at these levels. Our target is the $24-26 zone.

FYI: Shares of Intel don't move very fast. Readers might want to consider turning this play into a calendar or diagonal spread to further maximize your gains.

June 13th, 2009 - entry price on INTC @ 16.31, option @ 1.36
symbol: VNL-AD, 2011 LEAP $20 call - current bid/ask $2.35/2.40
-stop loss on INTC @ 14.40.

Chart of INTC:


JOYG $39.95 +1.14 -- Joy Global Inc.

When the dollar spiked higher last Monday the material/commodity stocks sank. Traders bought the dip in JOYG near its 38.2% Fib retracement of the July-August rally and its rising 30-dma. I am not suggesting new long-term bullish positions at this time. FYI: JOYG is expected to report earnings on September 2nd. The P&F chart still points to a $59 target.

June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 3.80
symbol: JQY-AH, 2010 JAN $40 LEAP call - current bid/ask $5.40/5.50
-stop loss on JOYG @ 29.00
-or-
June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 6.90
symbol: ZMC-AH, 2011 JAN $40 LEAP call - current bid/ask $10.10/10.40
-stop loss on JOYG @ 29.00

Chart of JOYG:


KSU $24.00 +0.80 -- Kansas City Southern

The railroad index has broken out to new highs for the year and KSU has followed in its footsteps. I am raising our stop loss to $16.99. More conservative traders may want to raise their stops even higher. I am not suggesting new LEAPS positions at this time. Our long-term target is the $27.50-30.00 zone.

May 9th, 2009 - entry price on KSU @ 17.01, option @ 0.90
symbol: KSU-AE, 2010 JAN $25 call - current bid/ask $2.55/2.80
-stop loss on KSU @ 16.99.

The symbol changed from LJR-AE to KSU-AE.

Chart of KSU:


LNN $45.13 +1.29 -- Lindsay Corp.

Traders were quick to buy the dip in LNN. The stock is back to challenging resistance near $46.00. At this point broken resistance in the $41.00-40.00 zone should now be new support. That's where we should look for a new entry point.

We want to sell half our LEAPS position at $49.50 and half at $59.50. I am raising our stop loss to $34.50.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $11.20/11.80
-stop loss on LNN @ 34.50
-or-
August 7, 2009 - entry price on LNN @ 41.55, option @ 6.00
symbol: NRR-AH, 2010 JAN $40 LEAP call - current bid/ask $8.00/8.50
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $25.05 +1.05 - McDermott Intl. Inc.

MDR has broken out to new highs and is challenging round-number resistance at $25.00. Shares look overbought and due for a dip. I am raising our stop loss to $17.25. I am also altering our exit strategy. We want to sell 50% to 75% of our position at $29.75. We'll sell the remainder at $34.00.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $6.20/6.50
-stop loss on MDR @ 17.25.

Chart of MDR:


MSFT $24.41 +0.74 -- Microsoft Corp.

MSFT appears to be breaking out from its sideways consolidation but now its testing potential resistance at the underside of its previous rising channel. I'm still not suggesting new positions at this time but we are raising the stop loss to $19.95.

This is going to be a long-term (18-month) trade. MSFT doesn't move that fast (normally). Investors might want to turn this into a calendar or diagonal spread, selling calls against your LEAPS position. My long-term target is the $30 region.

June 2nd, 2009 - entry price on MSFT @ 21.60, option @ 2.20
symbol: VMF-AE, 2011 Jan. $25 call - current bid/ask $3.15/3.20
-stop loss on MSFT @ 18.40.

Chart of MSFT:


MT $36.54 +1.31 -- ArcelorMittal

MT, like many material stocks, plunged last Monday with the market's decline and dollar's rally. Shares have recovered. Our long-term target is the $50 region. I am updating our stop loss to $27.40.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $3.40/3.70
-stop loss on MT @ 27.40.

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask $1.00/1.20
-stop loss on MT @ 27.40.

Chart of MT:


NYX $27.93 +0.05 -- NYSE Euronext

NYX found support near $27.00 last week but its bounce has lagged behind the rest of the market. The stock has tested its rising trendline. If you are looking for an entry point this is it but I would only enter small positions probably 1/2 to 1/4 your normal size and I suggest you raise your stop loss! Our long-term target is the $35.00-40.00 zone.

Apr. 11th, 2009 - entry price on NYX @ 21.51, option @ $1.81
-- NZV-AD, 2010 $30.00 LEAP call - current bid/ask $2.04/2.08
-stop loss on NYX at $19.95

Chart of NYX:


PBR $44.33 +1.31 -- Petroleo Brasiliero

Strength in crude oil and the oil sector has helped PBR breakout over its August highs. Short-term technicals are turning bullish again. I'm raising our stop loss to $33.50. The next hurdle for the bulls is the June high near $46.00. The plan is to sell half our position at $49.50 and the rest at $57.50.

Apr. 4th, 2009 - entry price on PBR @ 35.10, option @ $2.80
symbol: PMJ-AJ, 2010 $50.00 LEAP call - current bid/ask $2.35/2.50
-stop loss on PBR at $33.50

Chart of PBR:


PCU $28.82 +1.25 - Southern Copper Corp.

PCU saw huge gains last week as investors bought the dip near $25.50. I am not suggesting new LEAPS positions at this time. I am adjusting our exit target. We want to sell half at $29.75 and sell the second half at $34.00. Our new stop is $19.99. More conservative traders may want to use a stop closer to $22.50 and exit completely at $29.75.

April 20th, 2009 - entry price on PCU @ 19.00, option @ 1.95
symbol: PCU-AE, JAN 2010 $25 LEAP call - current bid/ask $5.50/5.70
-stop loss on PCU @ 19.99.

Chart of PCU:


PEP $57.49 +0.65 -- PEPSICO Inc.

Traders bought the dip in PEP near $56.00 and its rising 40-dma. I'm not suggesting new LEAPS positions at this time. Our long-term target is the $65-70 zone. We'll use a stop loss at $51.50. This is an 18-month bet.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $4.50/4.80
-stop loss on PEP at $51.50

Chart of PEP:


RAI $46.12 +0.70 -- Reynolds American Inc.

RAI has rallied to new highs for 2009. Shares remain very overbought. I am not suggesting new bullish positions at this time. I'm suggesting we take some money off the table at $49.50 (sell half) and exit completely at $57.50.

July 24th, 2009 - entry price on RAI @ 42.50, option @ $1.45(estimate)
symbol: RAI-BI, 2010 FEB $45.00 LEAP call - current bid/ask $3.00/3.30
-stop loss on RAI at $35.99

or

July 24th, 2009 - entry price on RAI @ 42.50, option @ $4.50(estimate)
symbol: OWO-AH, 2011 JAN $40.00 LEAP call - current bid/ask $6.80/7.50
-stop loss on RAI at $35.99

Chart of RAI:


RIG $77.53 +2.18 -- Transocean Ltd.

When oil stocks sold off on Monday RIG fell toward $72.00. Shares retested this level as support on Wednesday. Now the stock is climbing through a cloud of moving averages and testing August resistance near $78.00. Look for another dip near its rising trendline as our next entry point. Currently our upside target is $98.00.

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 5.40
symbol: RIG-AP, JAN 2010 $80 call - current bid/ask $6.40/6.80
-stop loss on RIG @ 64.99.

-or-

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 3.90
symbol: RIG-AZ, JAN 2010 $85 call - current bid/ask $4.50/4.70
-stop loss on RIG @ 64.99.

Chart of RIG:


SGY $12.95 +0.25 -- Stone Energy Corp.

SGY followed the action in the oil service stocks with the big spike down last Monday and the rally back. I am not suggesting new long-term bullish positions at this time. We have already sold half at $11.77. Our second and final target is $14.75. FYI: I'm raising the stop loss to $7.99. More conservative traders may want to place their stop closer to $9.00.

June 22nd, 2009 - entry price on SGY @ 6.35, option @ 0.75
symbol: STQ-AB, 2010 JAN $10 LEAP call - current bid/ask $4.00/4.30
-stop loss on SGY @ 7.99

FYI: sell half LEAPS position at $3.20 (+326%)

-or-

June 22nd, 2009 - entry price on SGY @ 6.35, (buying the stock)
-stop loss on SGY @ 7.99

FYI: sell half stock position at $11.77 (+85.3%)

Chart of SGY:


SLB $56.56 +2.76 -- Schlumberger Ltd.

Last Monday SLB broke down from a big pennant formation. Yet by week's end the stock has broken out through the other side. I am not suggesting new bullish positions at this time.

Currently our exit strategy has three parts. The plan was to sell one third of our position at $59.00, which was originally our first target. We'll sell another one third at $69.00. We'll exit our final third at $77.50.

April 20th, 2009 - entry price on SLB @ 45.01, option @ 3.00
symbol: SLB-AL, JAN 2010 $60 LEAP call - current bid/ask $4.20/4.40
-stop loss on SLB @ 44.90.

1st exit @ $59.00 (1/3 of position) option @ $7.25 (+141% estimate)

Chart of SLB:


UNG $11.35 -0.16 - U.S. Natural Gas ETF

It has been a very ugly three weeks for the UNG natural gas ETF. It looked like it might bounce from the July lows near $12.00. It didn't even try. Shares collapsed in a rush. The bad news is that I suspect the sell-off will continue until UNG near the $10.00 level. I'm not suggesting new bullish positions at this time.

Previous Comments:

I'm suggesting readers wait for the UNG to show new signs of bottoming before we consider new bullish positions. It may take several weeks but this is a long-term 18-month investment so we have time before putting any more capital to work here.

Trading Note: Investors may want to consider just cutting losses now. If I'm right we will get another entry point lower from here or at least on the way up instead of watching the premium slowly decay.

Looking at the big picture it seems like natural gas is in the process of making long-term (multi-year) lows here but that doesn't mean the commodity won't get more oversold first Our long-term target is the $25-30 zone.

June 16th, 2009 - entry price on UNG @ 16.26, option @ 3.90
symbol: ZZM-AT, JAN 2011 $20 LEAP call - current bid/ask $1.20/1.30
-stop loss on UNG @ no stop

Weekly Chart of UNG:


UYG $5.63 +0.23 - ProShares Ultra Financials (2x) ETF

I've said it before in the FAS update. Financials have helped lead this market higher. Now the UYG and the underlying index is testing resistance at its August highs. The trend is up and investors buying dips. I am not suggesting new positions at this time.

Editor's Note: The idea is to hold this ETF as a long-term investment but experienced investors may want to trade it by taking profits now and re-entering on a pull back.

Don't forget that the UYG trades off the DJUSFN index.

The plan is to hold the UYG for 18 to 24 months or longer. We'll evaluate potential exit points along the way.

Our strategy called for buying the ETF instead of the options.

Current position in the UYG = $1.50 entry (stop loss: 2.85)

Chart of UYG:


VOD $21.78 -0.15 -- Vodafone Group

VOD had a head start on the rest of the market. Shares rallied to new relative highs on Thursday. The action on Friday might be a short-term top. The stock is overbought and due for another dip. I'm not suggesting new long-term bullish positions at this time. Our target is the $27.50 region.

July 10th, 2009 - entry price on VOD @ 18.25, option @ 1.10
symbol: VOD-AD, 2010 JAN $20 LEAP call - current bid/ask $2.55/2.65
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $17.00 +0.09 -- MEMC Electronic Materials Inc.

It's been a lose-lose for WFR with both the semiconductors under performing the rest of the market and the solar stocks really under performing. The stock broke down under its trendline of support but managed to find new support at $15.75. Technically this might look like a new bullish entry point to buy LEAPS I would hesitate. Readers may want to wait for a rally over $18.00 and its 50-dma before launching positions. Conservative traders could raise their stops toward last week's low. Our long-term target is the $30.00 region.

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 2.50
symbol: CJC-AD, 2010 JAN $20 LEAP call - current bid/ask $1.25/1.40
-stop loss on WFR @ 14.75

-or-

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 3.43
symbol: ZET-AE, 2011 JAN $25 LEAP call - current bid/ask $1.85/2.10
-stop loss on WFR @ 14.75

Chart of WFR:


CLOSED Plays

ERTS $19.44 +0.19 -- Electronic Arts

After several weeks of consolidating in the $20-22 zone ERTS has broken down. The stock market is breaking out to new highs but ERTS is rolling over under significant support. I'm suggesting we abandon ship and cut our losses early. More aggressive traders could let it ride but I expect ERTS to under perform the next few weeks.

April 20th, 2009 - entry price on ERTS @ 18.00, option @ 1.08
symbol: EZQ-AE, JAN 2010 $25 LEAP call - current bid/ask .60/0.65
-stop loss on ERTS @ 17.95.
08/22/09 - early exit. option @ 0.60

-or-

April 20th, 2009 - entry price on ERTS @ 18.00, option @ 0.70
symbol: DXU-AD, JAN 2010 $30 LEAP call - current bid/ask .10/0.20
-stop loss on ERTS @ 17.95.
08/22/09 - early exit. option @ 0.10

Chart of ERTS:



Watch

Construction & Lead-Acid Batteries

by James Brown

Click here to email James Brown


New Watch List Entries

TEX - Terex Corp

XIDE - Exide Technologies


Active Watch List Candidates

ANR - Alpha Natural Resources, Inc.,

BEAV - BE Aerospace Inc.

BG - Bunge Limited

CLF - Cliffs Natural Resources Inc.,

CNX - Consol Energy Inc.

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

WLT - Walter Energy Inc.

X - United States Steel Corp.


Dropped Watch List Entries

DISH was promoted to the play list this weekend.


New Watch List Candidates:

TEX $16.70 +1.12 -- Terex Corp.

If the economy is truly improving then construction sending should pick up and that would be good news for TEX. The stock has built a pretty solid looking, long-term bottom over the last several months. I am listing two different entry points to buy LEAPS on this stock. We can buy a dip at $15.00 or a breakout over resistance at $18.25. I'm suggesting a stop loss at $11.75 for the dip entry point and a stop loss at 13.90 for the breakout entry point. Our upside target is the $28.00-30.00 zone.

Company Info:
Terex Corporation is a diversified global manufacturer with 2008 net sales of $9.9 billion. Terex operates in four business segments: Terex Aerial Work Platforms, Terex Construction, Terex Cranes, and Terex Materials Processing & Mining. Terex manufactures a broad range of equipment for use in various industries, including the construction, infrastructure, quarrying, surface mining, shipping, transportation, refining and utility industries. Terex offers a complete line of financial products and services to assist in the acquisition of Terex equipment through Terex Financial Services. (source: company press release or website)

Buy-the-Dip trigger: $15.00

-or-

Breakout trigger: $18.25

BUY the 2010 JAN $17.50 Calls (symbol: HAG-AW)
-or-
BUY the 2010 JAN $20.00 Calls (symbol: HAG-AD)
-or-
BUY the 2011 JAN $20.00 Calls (symbol: VXQ-AD)

Chart of TEX:


XIDE $7.65 +1.34 Exide Technologies

XIDE is another stock that has built an inverse head-and-shoulders bottom. The stock exploded higher on Friday after shares were upgraded Friday morning. The breakout over its May-June highs is certainly bullish but I expect shares will fill the gap. The plan is to buy calls on a dip at $6.50. We'll use a stop loss at $4.85. Our target is $12.00.

Company Info:
Exide Technologies, with operations in more than 80 countries, is one of the world's largest producers and recyclers of lead-acid batteries. The Company's four global business groups - Transportation Americas, Transportation Europe and Rest of World, Industrial Energy Americas and Industrial Energy Europe and Rest of World - provide a comprehensive range of stored electrical energy products and services for industrial and transportation applications. Transportation markets include original-equipment and aftermarket automotive, heavy-duty truck, agricultural and marine applications, and new technologies for hybrid vehicles and automotive applications. Industrial markets include network power applications such as telecommunications systems, electric utilities, railroads, photovoltaic (solar-power related) and uninterruptible power supply (UPS), and motive-power applications including lift trucks, mining and other commercial vehicles. (source: company press release or website)

Buy-the-Dip trigger: $6.50

BUY the 2010 March $7.50 Calls (symbol: FRU-CU)
-or-
A better idea might be to just buy the stock at $6.50

Chart of XIDE:


Active Watch List Candidates:


ANR $36.08 +1.50 - Alpha Natural Resources, Inc.

I am suggesting we turn more aggressive on ANR or it could run away from us. Let's buy 1/2 of our normal position on a dip at $34.00 and we'll use a stop loss at $29.50 since the $30.00 level is support. Should ANR continue to dip we can look for a bounce from $30 as a chance to buy the second half. If triggered our long-term target is the $45.00-50.00 zone.

Buy-the-Dip trigger: $34.00 (1/2 position)

BUY the 2010 January $35.00 calls (symbol: ANR-AG)
or
BUY the 2011 January $40.00 calls (symbol: VJV-AH)

Chart of ANR:


BEAV $17.77 +0.23 -- BE Aerospace Inc.

The bounce in BEAV off its lows last week under performed the rest of the market. I'm keeping our trigger at $15.00. More aggressive traders may want to consider jumping in early near $16.00. If triggered our stop is at $11.90.

Buy-the-Dip trigger: $15.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
or
BUY the 2010 January $17.50 calls (symbol: BQV-AW)
or
BUY the stock at $15.00

Note: At $15.00 you could just buy the stock instead but the $15 calls will allow you more leverage on your investment.

Chart of BEAV:


BG $66.30 +0.66 -- Bunge Limited

More aggressive traders may want to buy this bounce. I am upping our trigger to $63.00. We'll use a stop loss at $54.75. More conservative traders can still wait for a dip toward $60.00. If triggered we're going to aim for the $85-90 zone. Currently the Point & Figure chart is bullish with a $94 target.

Buy-the-Dip trigger: $63.00 *new*

BUY the 2010 January 70 calls (BGW-AN)

Chart of BG:


CLF $27.54 +1.14 -- Cliffs Natural Resources Inc.

The rebound in CLF under performed the rest of the market. I'm going to keep our triggers where they are. We have a buy the dip trigger at $23.50 and a breakout trigger at $32.55. If triggered our long-term target is the $50.00-55.00 zone. We'll use a stop loss at $19.40 for the dip entry point and a stop at $24.50 for the breakout entry point.

Buy-the-Dip trigger: $23.50

Breakout trigger: $32.55 BUY the 2010 January $30.00 call (CLF-AF)

Chart of CLF:


CNX $40.45 +1.59 -- Consol Energy Inc.

I am upping the trigger to buy LEAPS on CNX from $35.25 to $36.50. A 50% correction of the July-August rally would be a pull back to $35.00. We'll use a stop loss at $29.99. If triggered we want to sell half at $48.50 and half at $57.50.

Buy-the-Dip trigger: $36.50 *new*

BUY the 2010 January 35.00 calls (symbol: CNX-AG)
or
BUY the 2011 January 40.00 calls (symbol: VTL-AH)

Chart of CNX:


ERJ $22.04 -0.96 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

I am raising our trigger to buy LEAPS on ERJ from $18.50 to $20.50. Our target is the $29-30 zone. I'm suggesting a stop loss at $16.45.

Buy-the-Dip trigger: $20.50 *new*

BUY the 2010 January $20.00 call (symbol: ERJ-AD)

Chart of ERJ:


IGT $20.79 +0.82 --- Intl. Game Technology

I am turning more aggressive with the entry point on IGT. We're raising it to $19.00 but more patient traders can wait for a dip near $18.00 or its 50-dma. If triggered at $19.00 I would only open a position 1/2 your normal size. We'll use a stop loss at $15.50. Our long-term targets are $25.00 (sell half) and $29.00 (sell half).

Buy-the-Dip trigger: $19.00 (19.00-17.50 zone)

BUY the 2010 January $20.00 call (IGT-AD) -or- BUY the 2011 January $20.00 call (VGG-AD)

Chart of IGT:


MEE $30.43 +1.18 -- Massey Energy Corp.

MEE is still a relative strength leader in its sector. I am raising our trigger to buy LEAPS from $23.50 to $26.00. I'm raising the stop loss to $19.95. Our long-term target is the $35.00-40.00 range. The P&F chart agrees and points to a $37.50 target.

Buy-the-Dip trigger: $26.00 *new*

BUY the 2010 January $25.00 call (MEE-AE)
-or
BUY the 2011 January $30.00 call (VHK-AF)

Chart of MEE:


MICC $73.55 +1.51 -- Millicom Intl. Cellular

We may have to give up on MICC. The stock just looks too extended. Currently the plan is to buy a correction back toward $62.50. More aggressive traders might want to raise that trigger. Buy-the-Dip trigger: $62.50

BUY the 2010 January $70 call (symbol: CQD-AN)

Chart of MICC:


WLT $59.58 +1.70 -- Walter Energy Inc.

The strength in shares of WLT is just amazing. We need to raise our trigger but even $50 seems too high. I'm leaving the trigger at $41.00 for now but know that we'll re-evaluate buying a correction the next time WLT produces one. We don't want to chase this parabolic move with a long-term entry point.

Buy-the-Dip trigger: $41.00

BUY the 2010 January 50.00 call (WLT-AJ)

-or-

BUY the 2011 January 50.00 call (OZE-AJ)

Chart of WLT:


X $44.86 +1.15 United States Steel Corp.

The rebound in X was somewhat anemic compared to the rest of the market. Shares have not yet filled the gap from last Monday and you can almost see a bearish head-and-shoulders pattern on the 30-minute chart. I'm keeping our trigger at $37.50. Traders can use the $37.50-35.00 zone to launch positions. We'll start with a stop loss at $32.40. Our target is the $60-70 zone.

Buy-the-Dip trigger: $37.50

BUY the 2010 January $40 calls (symbol: FBJ-AH)

Chart of X: